Markets change, financial situations change, family situations change. Yet most financial advisors base their client relationships on rigid financial plans created at the beginning of the relationship.

Along with planning and investing, tax expertise is a critical tool in helping clients achieve their goals. As licensed tax practitioners, we weave expert tax consulting directly into our wealth management service–and that gives you an advantage few other advisors can offer.

The U.S. markets did well in 2017, and international markets did even better as the world experienced a global recovery with little inflation.

Asset Class Performance Over the Last Twelve Months:

CASH

• Yields on Cash Assets/Money Market Funds saw a noticeable increase in 2017.
• Interest rates on short-term cash assets rose over the last year. The 4-week T-Bill rate started 2017 at 0.52% and ended the year substantially higher at 1.28%.

BONDS

• In 2017, yields on the short-term side of the bond market went up, while yields on the long-term side went down. In effect, it was a flattening of the yield curve.
• Short-term bonds turned in slightly positive returns for the year, despite the increase in short-term yields, while longer-term bonds performed well. The Barclays US Long Government Bond Index showed a 9.0% total return.
• Foreign bonds also had positive results last year as rates declined globally. The decline in the U.S. Dollar added to the overall performance.

STOCKS (see 2017 Annual Equity Index Returns chart above):

All Equity categories turned in double-digit returns except for the commodity-based asset classes of Precious Metals and Energy.

The Dow Jones Industrial Average was up 28.1% for 2017, and was up 11.0% for the latest quarter. The more broadly-based S&P 500 Index climbed 21.8% for the last twelve months, and was up 6.6% for the fourth quarter.

International equities turned in excellent numbers for the last year as the MSCI EAFE Index moved up 25.0%. Europe (MSCI Europe) turned in solid returns, with an increase of 25.0% in 2017. The Pacific Rim markets performed very well with Japan (MSCI Japan) up 24.0%, while Asian stocks (MSCI Pacific ex Japan) posted a 25.9% return over the last year.

Technology was the clear winner with an outstanding 42.5% return.

Energy stocks continue to rebound from the declines of a year ago, along with an improving world economy. Energy stocks turned in a 7.6% return for the year.

12-24 Month Outlook:

The latest U.S. GDP (Gross Domestic Product) increased at an annual rate of 3.2% in the third quarter of 2017. The latest GDP growth rates are the highest since the beginning of 2015.

We continue to expect the global economy to have strong GDP growth. The IMF forecast is unchanged with 3.6% GDP growth for 2017 and 3.7% in 2018.

The Fed has implemented a program to reduce their balance sheet, and in so doing, will continue to raise rates into the foreseeable future.

In late December, Congress passed the Tax Cuts and Jobs Act of 2017, and it was quickly signed into law by the President. The law reduced tax rates on U.S. corporations from 35% down to 21% and this should bode well for corporate earnings domestically.

The unemployment rate was 4.1% domestically in December, a 17-year low. This was the seventh year in a row that the economy generated more than 2 million jobs annually. Globally, employment has been improving, but is expected to remain relatively stable for the future.

With an improving global economy, we expect increasing demand for goods and services worldwide.

Investment Strategy Moving Forward:

Our overall strategy is mostly unchanged from last quarter.

CASH – The Fed will continue to raise rates for the near-term, albeit slowly. We believe cash, for the first time in many years, will begin paying out rates above the close-to-zero mark. For now, our cash allocations will remain low.

BONDS – With the Fed raising interest rates, long term bonds are subject to declines. We are keeping a short duration in our bond holdings. International bonds should do well as economies improve in the developed countries.

STOCKS – Looking forward, the best opportunities are in equities.

Domestic Large-Cap stocks should benefit most, and they remain our largest asset class holding in the portfolios.

European stocks are attractive as their economies are improving and their valuations are cheaper than the U.S.

Asian stocks should do well as their growth continues to improve.

Energy stocks made a recovery this year due to low valuations and an improving economy. We believe this is an attractive sector for the long-term. As growth improves the demand for energy improves as well.

Our continuing theme is that we see many positives worldwide. We expect continued global growth with low inflation, which should bode well for the stock markets of the world. There are no meaningful indications of an economic recession occurring in the near-term. As such, we continue to maintain a bullish stance moving forward.